The distribution of income and wealth Flashcards
What is wealth?
A stock of valuable assets
What is marketable wealth? Example?
Wealth that can be transferred to others
e.g. property
What is non-marketable wealth? Example?
Wealth specific to a person, which cannot be transferred
e.g. life insurance
What is the distribution of wealth?
How wealth is shared out between the population
What are the sources of wealth? (4) (ICES)
Inheritance
Chance
Entrepreneurship
Saving
What are the causes of wealth inequality? (4) (MICI)
Marriage
Inheritance
Chance
Income inequality
What is income?
A flow of money to a factor of production
What is the distribution of income?
How income is shared out between the factors of production
What is the Lorenz curve?
A diagrammatic representation of the distribution of income and wealth
What is the Gini coefficient?
A statistical measure of the degree of inequality of income or wealth
If the Gini coefficient is closer to 1, what can be concluded?
It is more unequal
What are the causes of income inequality between households? (3)
Wealth inequality
Level of skills and qualifications
Differences in earnings
What are the methods a government intervention to make the distribution of income/wealth more equal? (4) (TMDL)
Taxation
Monetary benefits
Direct provision of goods and services
Legislation
How does taxation improve the distribution of income/wealth?
Progressive tax, higher the income, the more tax you pay
How does monetary benefits improve the distribution of income/wealth?
Gives families with lower income extra supports
How does direct provision of goods and services improve the distribution of income/wealth?
e.g. education
Free at the point of consumption
How does legislation improve the distribution of income/wealth?
e.g. national minimum wage
What is absolute poverty?
When an individuals or household income is insufficient for them to afford basic shelter, food and clothing
What is relative poverty?
When people are poor in comparison to others
What are the causes of poverty? (6) (ULSOPI)
Unemployment Low wages Sickness and disability Old age Poverty trap Imperfect information
What is the poverty trap?
When individuals ore households are no better off following a pay increase because tax paid increases and benefits are withdrawn
What are the methods a government use to address the problem of poverty? (3)
National minimum wage
Reducing unemployment
Training and education
What is voluntary unemployment?
When a worker chooses not to accept a job at the going wage rate
What is the national minimum wage?
A statutory minimum wage introduced to boost the earnings of the low paid
Where must the national minimum wage be set?
Above the market equilibrium wage
What is the risk of a national minimum wage?
May result in government failure due to the rise in unemployment
